UPDATE: Morgan Stanley Upgrades Finish Line Calling it 'Our New Top Small Cap Idea'
In a note released Friday Morgan Stanley upgraded Finish Line (NASDAQ: FINL) from Equal-weight to Overweight.
Morgan Stanley analyst, Jay Sole describes why Finish Line appears to be in such a good position by beginning with Finish Line's ability to produce high quality results despite heavily reduced mall traffic over the last quarter. Sole looks to a "strong" new product pipeline, as well as the continuing health and wellness trend as a driver for Finish Line's premium running footwear business through 2014. In addition to this, Sole notes Finish Line will show case new Nike styles a month earlier than other retailers, which is significant given Nike represents 65-70 percent of Finish Line's sales.
Looking to the competition, Sole believes that although the street seems to be favoring Foot Locker over Finish Line currently, this should change given the companies "very similar characteristics". Moreover while both companies trade near 15x, Sole models a 13 percent CAGR for Finish Line versus nine percent for Foot Locker.
Turning to valuation, Sole has raised 2015 EPS estimates by 3 percent to $1.89, and notes his 2016 EPS estimate of $2.20 is 4 percent above consensus.
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